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What do Airbnb, Etsy, OpenTable, Uber, and Kickstarter have in common? Well, to begin with, each of them are relatively young. Each of them also followed the heavyweights Amazon and Ebay, and each of them share something else in common:

Their success stems from the simple fact that each one removed friction in a market by aggregating supply and demand in a user-friendly way. And there is something else: Each of these platforms have reaped the massive benefits of network effects—that is, as more people use the platforms, more people want to be on the platforms. All of this leads to improved quality of goods/services, which in turn leads to dominance. Competitors are left behind, whether online (Kickstarter, for example, was not the first crowdfunding site.), or offline.

While these now well-known marketplaces have already gained significant scale, I believe that the equity crowdfunding marketplace that ultimately comes out on top couldbe even larger than many of the great marketplaces of today. To understand why, it’s useful to look at an example. Lets take some stats we have from CircleUp, an equity crowdfunding site, and OpenTable, the world’s leading online reservations marketplace. According to OpenTable’s 2012 SEC filings, the Company seated approximately 120 million diners in 2012, driven through its own platform, through affiliates (i.e., Yelp) or directly through the restaurant (i.e., on the restaurant’s site using OpenTable). If you divide OpenTable’s $91 million in reservation revenue by its 120 million consumers, that comes out to $0.76 per consumer. Not bad for many internet businesses.

Now let’s look at equity crowdfunding. I’ll use CircleUp as an example, and I welcome others in the comments section below. On our platform, investors can invest anywhere from thousands to hundreds of thousands of dollars per investment (the minimum investment is determined by the entrepreneur on a deal by deal basis). Additionally, across the 21 companies that we have helped raise more then $21 million for, we have seen a large portion of capital come from “repeat investors”—that is, those who have made multiple investments on the platform. Our average investment depends on the deal but is typically five figures—for this post lets assume $10,000. If the average investor only invests $10,000 per year on CircleUp (note this is not the actual average, just a hypothetical), it would be worth somewhere between $500 and $1,000 in revenue to CircleUp (our fee structure is based on the size of the raise). Given the repeat investment rate, investors are often worth several thousands dollars per year to CircleUp.

There are currently 8.6 million households that qualify as accredited investors, but only a few hundred thousand that today consider themselves angel investors. And the amount invested into private companies ($50 Billion in the form of equity) hasn’t changed in a decade. Why isn’t it growing? How could it, given that there has been no innovation (until the JOBS Act and equity crowdfunding) for 80 years? Before platforms like CircleUp existed, investors would have to spend time sourcing quality deal flow, which can (and often is) a full time job in itself. If you believe these marketplaces have the chance to supplement other parts of private investing (more broadly- Reg D investments), then it is important to note that the entire Reg D market is $1.3 trillion. While our sample size is still small and equity crowdfunding is in the first inning of what we hope is a long game, when I look at the average size per transaction on CircleUp + the “repeat purchase” rate + the total amount of investable capital, the total market potential for equity crowdfunding is many times that of any online marketplace out there today.

Now here is why I’m wrong. By a lot of measures, equity crowdfunding may have the dynamics of great marketplaces. It is attacking a huge market that has massive inefficiencies. In the case of consumer and retail, CircleUp’s focus, there are 700,000 consumer and retail companies with $1M-10M in revenue- almost all of which will need to raise equity to grow at some point. By most accounts, the average company takes 12 months to raise money offline, as compared to 2-3 months on CircleUp. There are also huge reasons an online marketplace will make private investing, and fundraising, a much better experience than the status quo: less travel, more efficient deal screening and investor screening, increased transparency and data, etc. Naturally, these advantages should expand the size of the current market even more.

All of this is great. Unfortunately, equity crowdfunding won’t capture that trillion dollar market that’s out there. Why? First, because equity crowdfunding isnot a better experience for all forms of Reg D offerings. That $1.3T market mentioned above? $1.1T are pooled investment vehicles. Sure, many of them will be replaced by online investing platforms, but many actually do add value and won’t be cut out. Equity crowdfunding will blossom when the market is broken, but that’s not the case for all private investing. For tech investing, as an example, it’s simply not broken. Any decent tech entrepreneur can raise money on Sand Hill Road. In consumer and retail, CircleUp’s focus, the status quo is broken- which is why we are growing so rapidly (The number of investors on CircleUp making investments—compared to the total number during the previous 15 months of our existence—grew by 75% in just the last 90 days).

The second reason I’m wrong, and why equity crowdfunding won’t be the largest, is because of frequency of investment. The purchase cycle in private investing for most investors is infrequent. Successful angels typically make 7-10 investments, but that can occur over several years. So while each individual investment is worth hundreds, or thousands, of dollars to an equity crowdfunding site in revenue, that investor may only invest a few times a year. That’s fine from a revenue standpoint, but it makes it more difficult to build word-of-mouth customer growth.

I’m not sure if I’m right or wrong. There are quality arguments on both sides. I do firmly believe, however, that equity crowdfunding will massively disrupt the existing broken markets. And that should be a great thing for the investors and entrepreneurs who use the platforms in those markets.